What are Determinants of the Level of Economic Activities in an Economy, Most Especially Nigeria?


By: Site Engineer, Staff

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Every firm operates in an environment that is dynamic and largely uncontrollable. This environment is important to the firm because it is the source of the company’s input, it absorbs the company’s output, and finally, it generates threats and opportunities which affect the firm’s performance.

The business environment is made up of economic, socio-cultural, political, legal and physical entities that currently or potentially affect the company’s operations.

In spite of the uncontrollability of the elements in the firm’s environment, management should identify, measure, predict, interpret and manage it to its advantage, since the firm’s ability or otherwise to do this could make the difference between success and failure.


Demography trends relate to changes over time, in factors such as population and its distribution by geography, age, sex, and ethnic groups. They also concern such statistics as birth-rate, death-rates, life expectancies, and income distribution.


Population, in all its ramifications, is an important determinant of the level of economic activities in an economy. It has a direct influence on aggregate demand since goods and services are demanded by people. Generally speaking, a higher population tends to imply a higher demand for goods and services concerning a given economy. For example, the entire African population has to be housed, fed and clothed. Consequently, it is expected that a higher population will almost certainly increase the level of demand for goods and services.

However, we should recognize that many other factors such as income levels, income distribution, consumer tastes, prices of commodities and the values of the society play a significant role in the determination of the level and pattern of aggregate demand.

With an estimated 1982 population of about 91 million people spread over a total and area of 923,773 square kilometers (356,669 square miles), Nigeria is the most populous country in Africa, and the most populate Black Country in the world.

The growth in population since 1911, based on various censuses conducted so far can be seen in the table below. While the national census conducted in 1963 was considered fairly reliable, the census conducted in 1973 had to be canceled because of widespread suspicion of deliberate overcoming. Consequently, the 1963 census figures and projections based on them are used in official circles.

Projection of the population figures in these two tables below assumes a growth rate of 2.5% between 1963 and 1971, and a 3% growth rate thereafter.

The population of Nigeria: 1911-1983

Year Mode of Derivation Total Population
1911 Census 15,966,380
1921 Census 18,626,690
1931 Census 20,396,000
1952-53 Census 29,093,007
1963 Census 56,670,055
1973 2.5% annual growth rate (1963-73) 72,542,461
1983 3% annual growth rate (1973-83) 92,860,484

Estimate based on United Nations estimated the growth rate of 2.5% per annum.

Source: Adapted from the Federal Republic of Nigeria: National Youth Service Corps. Lectures for the Orientation Course, page 11.

According to the 1963 census figures, the bulk of the population is concentrated in the central-northern, south-eastern and south-western regions. Also, over 50% of the country’s population occupied just about 15% of the land area. The estimated 1978 population was distributed among the then nineteen states as shown in table 3.9.

Estimated 1978 Population by States

Anambra 5,075,214
Bauchi 3,430,793
Bendel 3,472,664
Borno 4,229,790
Benue 3,424,744
Cross River 4,908,046
Gongola 3,676,282
Imo 5,182,522
Kaduna 5,182,522
Kano 8,148,890
Kwara 2,419,301
Lagos 2,037,046
Niger 1,685,584
Ogun 2,118,581
Ondo 3,851,934
Oyo 7,350,286
Plateau 2,859,845
Rivers 2,427,000
Sokoto 6,404,702
Total 78,486,388

Source: Federal Electoral Commission

With 50.5% males and 49.5% females, Nigeria’s population was almost evenly distributed between the two sexes. Those between 15 and 54 years (the working-age) made up just over half of the population, while about 45% were under 15 years of age.

The 1963 Census figures showed that 10.6 million people or 19.1% lived in urban centers each with a population of 20,000 or more.

The birth rate had been estimated to have fallen from 5.2% in 1960 to 5% in 1979, while the death rate had fallen at a faster rate from 2.5% in the death rate, life expectancy at birth had increased to a 1979 estimate of 49 years from an estimated 1960 figure of thirty-nine.

Another important feature of the population in Nigeria is the distribution by ethnic groups. The 1963 population figures showed that the three major ethnic groups (Hausa, Yoruba, Ibo) constituted about 58% of the total population. A more detailed breakdown is shown below.

Population Distribution by Ethnic Groups (1963 Census)


Hausa                                      21

Yoruba                                    20

Ibo                                           17

Fulani                                      9

Kanuri                                     4

Ibibio                                       4

Tiv                                           3

Ijaw                                         2

Edo                                         2

Other Nigerians                       20


(Total not equal to 100% due to rounding off.)

Source: NYSC: Lectures for Orientation Course, p. 10.

Population distribution patterns are important to manufacturers and sellers, since consumption patterns sometimes differ from one geographical area to another, from one sex to the other, from one tribe to another, and from one age group to another.

Technological Factors

Technology is a constantly changing factor in any society. New processes, new products, and techniques that alter the productive capacity and efficiency of organizations, and which quickly render their present methods and products obsolete, are a frequent phenomenon in the industry. Keeping abreast of these developments, which is the surest way to avert obsolescence, often means the introduction or adoption of new processes and new approaches and techniques.

To effectively industrialize, Africa, Nigeria, in particular, needs some technological transformation through the acquisition of new technology. To achieve this, the Federal Government sought, during the 4th National Development Plan period, to acquire new technology through all possible methods, namely Research and Development (R&D), formal training, implementation of joint ventures, and outright purchase of patents and trademarks.

To coordinate efforts in this direction, the Federal Government under the Shagari Administration created the Ministry of Science and Technology in October 1979. The Ministry, which took over the functions of the now-defunct National Science and Technology Development Agency (NSTDA), was entrusted with the following functions:

  1. The promotion of science and technology-oriented research;
  2. Liaising with Universities and federal polytechnics;
  3. The formulation of a national policy on science and technology;
  4. Promoting and administering technology transfer programs.

The following were the objectives of the Ministry for the 1981 – 1985 plan period.

  1. The direction, coordination, and supervision of scientific and technological research in both the public and private sectors, to prevent unnecessary duplication;
  2. The dissemination and commercial exploitation of the results of scientific and technological research, through extension and research liaison services for farmers, industrialists, and entrepreneurs;
  3. The development of a comprehensive and dynamic national policy which will make Nigerians science and technology conscious and oriented;
  4. The promotion of scientific and technological research in existing research institutes ‘that had been taken over by the Ministry’ and new ones that may be created to fill identified gaps; and
  5. Technical manpower training and development through direct training, attachment and extension services.

With a total capital program of N600 million planned for the Ministry for the 1981 – 1985 planned period, its priority areas included crops, livestock, fishery, forestry, water resources, manufacturing, and health.

In addition to the activities of the Ministry of Science and Technology, the Federal Government seeks to promote technological development through other methods, including:

  1. The establishment of a bank of technological information, to enable indigenous entrepreneurs to obtain useful information and advice about appropriate resources and types of technology;
  2. A reward system designed to remunerate and encourage successful researchers, investors, and innovators;
  3. Active encouragement of technology-intensive industries to boost the rapid development, acquisition and adaptation of technology; and
  4. Making expenses on research and development tax-deductible, provided the research and development efforts are justified, done in-house, or given to a recognized Nigerian research and consultancy organization (as much as possible), and the fruits of the research are appropriately patented.

Several research institutes also participate in many ways in the development of indigenous technology. Examples of such centres are the Industrial Training Fund, Jos, the Nigerian Institute for Oil Palm Research (NIFOR), Benin City, The Nigerian Institute for Industrial Research (NIIR), Oshodi, the Centre for Policy and Strategy Studies, Jos, the Nigerian Institute for Agricultural Research, Ibadan, and Research Centres located in most Nigerian Universities.

Socio-Cultural Variables

Nigeria is a culturally diverse nation. Although it consists of over two hundred ethnic groups and thirty-six states and the Federal Capital Territory, Abuja, four major geo-cultural groupings can be identified. These are the south-western, – Yoruba, dominated group, the south-eastern, – Igbo, dominated zone, the mid-western zone made up of Edos, Urhobos, Isekiris, and Ijaws, and the North, dominated by the Hausa-Fulani groups.

These groups widely differ in their general lifestyles, eating habits, dressing, industry, spending patterns, attitudes to paid employment, occupation, religion, education, and foreign cultures.

While the Igbos and other ethnic groups that inhabit the southeastern zone and mainly Christians, Moslems dominate the north. The south-western zone of the country is also predominantly Christian.

It is doubtful whether there is anything that can today be referred to as the Nigerian culture. Apart from cultural diversity which is a significant feature of this country, several other factors are constantly changing and modifying our traditional ways of life.

Some of these factors are:

  1. Improvement in communication and infrastructures;
  2. Improvement in education and mass literacy;
  3. Urbanization;
  4. Government encouragement of foreign investment; and
  5. The mass importation of foreign goods.

The spread of education in Nigeria is a major factor is further transforming the way of life of Nigerians. Primary and secondary school enrolment has increased. The number of polytechnics has increased tremendously. Also, the number of universities has increased tremendously in the last decade, from six in the early seventies to about twenty in mid-1982.

Other important socio-cultural factors of potential significance to managers today are the attitude to work, changing the family system, attitude to corruption and society’s ways of measuring success.

The dominant notion among Nigerians today is that an average Nigerian worker is lazy, and will not work if he can help it. The arguments are however suspected, for several reasons. The notion that Nigerians have an ingrained negative attitude to work is inconsistent with the observed zeal with which farmers, for instance, work on their farms. The high and long walls of Kano and Zaria cities were certainly not built by lazy people, nor was the deep, wide long moat surrounding the old Benin City the handiwork of idlers.

Also, the industry and conscientiousness of many self-employed Nigerians contradict the notion that Nigerians are lazy. The obvious conclusion, therefore, is that if Nigerians exhibit a bad attitude to work, the fault must be with the management who have not been able to design a good, workable and effective motivational package to spur them to handiwork.

The changing structure of the Nigerian economy from the traditional rural and agrarian economy of the 1950s to the booming industrialism of the 1980s has drastically changed the life-patterns of the people. For instance, industrial employment, urban life, monogamy and movement from the extended family system to a conjugal family type, especially among the educated upper and middle classes have altered the lifestyles or patterns of the 1950s.

Corruption, today, appears to be the order of the day in Nigeria. Some explanations can be adduced. Firstly, it is sometimes argued that the pressures of the extended family system tend to strain the average worker’s purpose. Secondly, there is a rush to join the group of budding investors, and since wages can hardly be saved to achieve this goal, the only quick way to obtain needed capital is usually through dubious means. Finally, managers appear unable or unwilling to install and implement internal control systems, that can eradicate or reduce fraudulent practices to a minimum.

The consumption patterns of Nigerians have changed considerably since independence in 1960. Consequently, washing machines, television sets, and other electronic equipment, sophisticated photographic equipment, carpets, furniture and clothing materials that were relatively unknown in the colonial era are a common feature in many homes today.

In the 1980s and beyond, it is expected that increasing education and increasing incomes will lead to the mass consumption of goods that are today the exclusive preserve of a few Nigerians.

Politico-Legal Factors

Business is also constrained by the political environment as well as the legal obligations that may be imposed on it from time to time.

In Nigeria, for example, the structure and methods of operation of the machinery of government differed during the five different stages of its political development; namely, the pre-colonial period, the colonial era, the parliamentary ear (1960-1965), the military regime (1966-1979 and 1984 onward) and the presidential era (1979-1983).

During the military administration, the Supreme Military Council, the Armed Forces Ruling Council, and later the Provisional Ruling Council and State Military Governors had both legislative and executive powers. Under the presidential administration of Shagari, the legislature was made up of the House of Representatives and Senate at the Federal level, and of the House of Assembly at the State levels. The President and his Ministers, or the State Governors and their Commissioners, on the other hand, constituted the executive arms of government at the Federal and State levels representatively.

Under the presidential system, bills that are proposals presented to the legislatures for enactment into laws may be initiated by the executive or legislators, either individually or collectively. Once passed by the House of Representatives and Senate (or House of Assembly in the case of the State), and assented to by the President (or the Governor in the case of States), the bill becomes law.

Under the presidential system, the legislative process may be quite long, sometimes taking up to six months to enact a law, unlike in a military regime, when an edict or decree could be enacted within a few days. The significance of this is that the legislative process, under a presidential system, is slower and more amenable to lobbying or influence from individuals, business and other interest groups. The existence and active participation of political parties under the presidential system, (unlike the military administration), have different implications for the type of government policies that are formulated, and also their manner of implementation. In a military regime, the target of lobbying is the State Military Governors and the Head of State. The State Assemblies and the National Assembly are lobbied under the presidential system. A final example can be found in the fact that while the colonial administrations were concerned with the exploitation of our raw materials for British industries, the post-independence administrations emphasized the indigenization of the ownership and control of industries, the development of indigenous technology, and the development of the industrial sector.

Another aspect of the politico-legal environment is the legal factor. A wide range of laws guides and constrain the operations of the business.

The most fundamental ones are The Company’s Act (Decree) 1968, The Hire Purchase Act (1965), The Sale of Goods Act (1893) and The Partnership Act (1890). Others include The Law of Contract, The Insurance Act and The Law of Agency. Apart from these, many others affect business in their everyday transactions, and with which the management must be familiar.

Some of these are outlined below:

Trademark Act (1965)

This gives the right of exclusive use of a trademark to the registered owner or user of the mark. A trademark in this decree is defined to include any device, brand, heading, label, title, name, signature, word, letter or any combination thereof.

Food and Drugs Degree (1974)

This decree provides for the regulation of the manufacture, sale, and advertisement of food, drugs, and cosmetics, and establishes the Food and Drugs Administration Board.

Patents and Designs Decree (1970)

This provides for vesting in a statutory inventor the patient for an invention that:

  1. It is new or is an improvement upon a patented invention;
  2. Results from an inventive activity; and
  3. That is of possible industrial application.

It also provides for a statutory creator of a design to be entitled to patent rights, if his industrial design is new and not contrary to public order.

Weights and Measures Decree (1974)

This offers protection to consumers against sellers or producers, as to misrepresentation of the weight, number, and measures of products offered for sale.

Nigerian Standards Organization (Amendment) Decree (1976)

This makes it obligatory for any manufacturer of an item, for which a mandatory standard has been set, to comply with such standards.

The Indigenization Act (1972 and 1977)

The Nigerian economic scene was dominated by foreigners, before 1972. Many businesses were owned and controlled by them. In February 1972, the Federal Military Government promulgated the Nigerian Enterprises Promotion Decree (1972), which sought to transfer the ownership and control of certain business enterprises to Nigerians.

For this purpose, all business enterprises operating in the country were categorized into Schedules 1 and 2. Enterprises in Schedule 1 were reserved exclusively for Nigerians with effect from 31 March 1974. The twenty-two types of enterprises in this schedule include retail trade (excluding department stores and supermarkets), newspaper printing and publishing, tire retreading, rice milling, advertising, bread and cake making, road haulage and bus and taxi services.

Schedule II under the 1972 indigenization decree was made up of those enterprises, in which Nigerians must have at least 40% equity interest by 31 March 1974. However, aliens could neither be owners nor part-owners of these enterprises, if their turnover or paid-up capital was less than 200,000 (N400) and 500,000 (N1,000,000) respectively. The thirty-three types manufacture, department stores, and supermarkets, construction, furniture manufacturer, bicycle marking, wires, nails, nuts, detergents and soaps, paint and cement.

Based on the recommendation of a panel set up in November 1975 to review the consequences of the 1972 indigenization decree, the Federal Military Government promulgated the 1977 Nigerian Enterprises Promotion Decree. This new decree classified all Nigerian business enterprises into three schedules. Schedule 1 contained those types of enterprises in which Nigerians were required to have 100% equity interest, that is, those to be fully owned by Nigerians. Sixty percent of the equity share in enterprises in Schedule 2 and forty percent of the equity of those in Schedule 3 was reserved for Nigerians.

The 1972 and 1977 decrees stipulated stiff penalties for offenders. The decrees empowered the Nigerian Enterprises Promotion Board to sell those foreign-owned businesses whose owners did not make any genuine efforts to indigenize within the time limit specified in the decrees. The problems encountered with enforcing the decree are given by the following extract:

Despite the relaxation in parts of the indigenization decree, the Nigerian Enterprises Promotion Board has taken action against six companies that it claims have failed to comply with the indigenization Act of 1977. It has sealed up the six companies which it named as Edelit and company (Lagos), Renaissance Marble (Lagos), owning (Lagos), the Nigerian Shoe and Handbag Company (Lagos), Comazzi Limited (Ibadan) and Swiss Lumber (Abakaliki). A further seven companies are being co-managed by the Board because of their failure to comply. They are Welder and company (Lagos), NEON Nigeria (Lagos), Farisco Industries, Nigeria, (Lagos), Bangson Nigeria (Ibadan), Aridi Industries (Benin), Jechi Construction (Benin) and Gabral Industries (Benin), Jechi Contracting (Benin) and Gabral Industries (Benin). A further 23 companies have been warned to comply with the act or face closure. 

The chairman of NEPB has reportedly lamented that the decree has had the undesirable effect of concentrating shares in a few hands and one geographical area of the country. He has also reportedly admitted that it has led to a decline or non-payment of dividends, poor performance, and a decline in profits. However, official sources claim that the decree has been a success.

The impact of the indigenization policy for businesses operating in Nigeria has been considerable. In all genuine cases, the transfer of ownership to Nigerians has also meant that control has had to be exercised by Nigerians. The outcome, in terms of the organizations’ ability to remain effective, has been mixed. Some believe that the transfer of ownership and control to Nigerians has resulted in management and financial problems, while others thought that the advantages of Nigerian ownership and control far outweighed their disadvantages.

The Land Use Decree (1978)

This act vests all lands in the various States in the (Military) Governor, who holds them in trust for the people. By this decree, the Governor is responsible for allocating all lands in urban areas of the State to individuals and organizations, while similar powers are conferred on the local government in respect of non-urban areas.

The decree provides for a land-use allocation committee in each local government area. They have advisory functions concerning land allocation. Additionally, the state land allocation committees are empowered to adjudicate in respect of disputes over compensation for improvements in lands for which certificates of occupancy are revoked.

The Labor Decree (1974)

This decree, which replaced the Labor Code Act (1958), consists of four parts. Part I contains general provisions in the area of wages, contracts and terms of employment. It provides, among other things, that all contracts of employment must provide for wages to be paid in legal tender (S.I). Section 7 stipulates that each employer shall give to a worker, within three months of his commencement of work, a written statement specifying certain particulars (mentioned in the Act) of the contract of employment.

Part II regulates the recruitment, while Part III provides, in part, for the conditions of employment of certain special classes of employees, namely women, apprentices, and minors. Part IV deals with other supplementary provisions.

In 1978, the decree was amended (Labor Amendment Decree, 1978). The amendment made it obligatory for employers, upon registration and recognition of a trade union, to operate the check-off system to cover all employees who are eligible to be members of the union, except those who contract out of the system in writing.

The decree does not replace the ordinary law of contract. However, the provisions in the law of contract remain in force, subject to this decree. Also, the decree does not apply to the armed forces, administrative, executive, technical and professional workers. Furthermore, it excludes domestic servants, unless the commissioner (now a minister) for labor provides otherwise.

Copyright Decree (1961)

This permits original literary, dramatic, musical, artistic work, sound recording or broadcasts to be protected by copyright, thereby prohibiting its use by others, except with the permission of the person or body in whom the copyright is vested.

Privatization and Commercialization Decree No. 25 of 1988

This decree provided the effect to the policy of rationalization and privatization of public enterprises, under the Structural Adjustment Programme. Privatization is defined as the relinquishment of part or all of the equity and other interests held by the Federal Government (and other governments) in certain business enterprises. Commercialization means the reorganization of enterprises wholly or partly owned by the Federal Government, (or other governments), such that the enterprises operate as profit-making commercial ventures, and without subvention from the government.

Among the 67 enterprises to be fully privatized were Nigerian Hotels Limited, New Nigerian Salt Company Limited, Guinea Insurance Company Limited and Flour Mills of Nigeria Limited. Some of those to be partially privatized were commercial and merchant banks, Nationals Oil and Chemical Company Limited, Nigeria Newsprint Manufacturing Company Limited and Nigeria Airways Limited.

Enterprises to be fully commercialized included Nigerian National Petroleum Corporation, Nigerian Mining Corporation, and the Nigerian Ports Authority. The Federal Radio Corporation, Nigerian Airports Authority, Nigeria Railway Corporation and National Electric Power Authority (NEPA) were some of the enterprises to be partially commercialized.

The Natural Environment

Nigeria is endowed with a large landmass with a surface area of 356,670 square miles (923,733sq.km), and an estimated 1982 population of about 91 million people. The land area is divided into three natural zones by the River Niger and River Benue, both of which take their roots from outside Nigeria. The country is blessed with natural resources.

Mineral Resources

Nigeria is blessed with enormous deposits of petroleum. It is the second-largest African oil producer after Libya and the sixth-largest oil producer in the world. In 1977, the total annual oil production was 766 million barrels, while corresponding figures for 1978, 1979 and 1980 were 698 million, 842.5 million, and 754.6 million barrels respectively. Oil deposits are found mainly in Rivers State, former Cross River, Imo and Anambra States. A substantial deposit is also offshore.

Apart from petroleum, Nigeria has deposits of natural gas, a large quantity of which is currently being flared due to lack of adequate facilities for harnessing and bottling it.

Coal is mined in the Enugu area while tin and columbite are produced around Jos. Other mineral deposits include iron-ore (Agbaja Plateau of Kwara State and Udi Plateau in the East); Limestone (Nkalagu, Agila, Calabar, Sokoto, Abeokuta, etc) and uranium (Liruei hills in Kano State and Jos Plateau).

The existence of these resources no doubt determines what types of investment are attractive. For example, petrochemical and steel products are expected to dominate the Nigerian economy in the years ahead.

Temperature, Rainfall, and Vegetation

The mean minimum and maximum temperatures in the south are 22.2o and 30.35o respectively, while the corresponding figures for the northern part of the country, are 18.88o and 34.44o. This means a higher mean recorded annually in the south-eastern coast of the country while the south-western coastal figures average 177.8cm. In the extreme north, this annual average drops sharply to 50.8cm. The rainfall comes during the rainy seasons which last from May to October every year.

The coastal regions are dominated by forest zones made up of saltwater and freshwater swamp forests and rain forest. As one travels northwards, these gradually give way to savanna grasslands. These climatic factors affect the choice of occupation of the people, as well as what they wear, what they eat and what types of houses they live in. For example, the southern forest vegetation has given rise to many sawmills.


In 1975, sixty-four percent (64%) of the Nigeria population was engaged in agriculture, while about 17% was engaged in manufacturing and processing. Distribution contributed 12% of the total gainful employment. The major foods produced today are cereals including sorghum, millet, maize and rice, groundnuts and sugar cane. The main agricultural exports include cocoa, palm kernels, and rubber.

Cattle rearing is another important occupation of the northerners while sheep, goats, and birds (fowls) are reared in the south. The milk and meat produced are consumed locally. Timber is also produced in the Niger Delta area, where the main types are obeche, abura, and mahogany. Finally, fishing is an important occupation in the riverine areas of former Bendel, Rivers and Cross River States.

Again, the occupations of the various people of Nigeria suggest the type of industries that will thrive, the consumption and lifestyles of the people and labor mobility. For example, cattle rearing suggests opportunities for dairy farming, and hence milk and meat production. Fishing companies are many in Nigeria today because people are used to fish and fishing.

Business Social Responsibility

Debates in management literature, about what the social responsibility of business ought to be, have made it difficult to achieve unanimity in the definition of the term. The narrowest definition states that the social responsibility of business is to maximize profit, by producing a product that is desired by, and beneficial to society.

In its widest sense, the term includes every socially desirable reform, such as improvements in our environment, churches, education, contributions to charity and crime reduction. Used in this sense, business is expected to contribute to the welfare of its public, including the immediate community served by the company and society at large.

Social responsibility as investments in, and contributions to the wider community, designed to help create a healthy overall environment that a company requires to survive and operate efficiently. This definition suggests that social policies should be embarked upon by business, only in so far as they are likely to be beneficial to the firm, by way of enhancing survival and efficiency.

A contemporary definition of business social responsibility should have four major parts:

  1. Elimination or reduction, by the offering firms, of the social cost arising from their normal business operation, environmental pollution, and so on, which constitute external diseconomies for other business as well as pose health or safety hazards for non-business entities;
  2. Outright cooperate philanthropy or social giving, in which the business organizations are required, or at least expected, to contribute to social causes (such as flood disasters, free education, urban cleanness, rehabilitation of the destitute, community development, etc) which may, or may not, have any direct conceivable benefit for the participating business firms;
  3. The responsibility to operate efficiently and effectively by maximizing shareholders’ wealth, offering efficient products and services to consumers, and maintaining a satisfied workforce; and
  4. Operating within the limits of the law of the land in its self-interest, and as a good citizen which lives up to its civic responsibility.

Most of the opponents of social responsibility are actually against only the corporate philanthropy facet. These opponents have advanced several reasons to buttress their opposition.

Firstly, some critics are of the view that rendering a social service is, and should be, the exclusive preserve of government and charitable organizations, while business organizations should be concerned solely with providing a commercial service or product. This, they contend, would allow society to enjoy the economic benefits of specialization.

Secondly, objection, sometimes raised in line with American tradition, is the idea of its demise. It is argued that social responsibility has adverse consequences, not only for business but also for humanity at large.

Thirdly, it is argued that business social responsibility conflicts with the firm’s objective of maximizing profit (or shareholders’ wealth) by drawing attention to non-profit oriented ventures.

Fourthly, they contend that businesses pay taxes which the government can use to promote social causes, and to solve social and environmental problems, resulting from the operation of businesses. Consequently, they maintain, it would be unfair and discriminatory to impose on businesses the additional obligation of social responsibility.

Fifthly, the argument usually advanced is that managers do not have the authority to use shareholders’ money to finance charity. Their responsibility, it is argued, is to make profits for shareholders which the individual can then disburse for social responsibility causes or otherwise as he deems fit.

Finally, some critics have contended that even if business social responsibility were acceptable, it has practical problems of implementation. Such difficulties include criteria for selecting social causes to be patronized and problems of enforcement.

On the other hand, advocates of social responsibility have tried to justify their stand on social and economic grounds. Firstly, they point to the fact that many problems of modern-day society, such as water, air, land and cultural pollution, urban congestion, and crimes are some of the effects of business operations. Business people cannot, therefore, fold their arms while society decays, politically, educationally and physically. They contend further that business taxes are too meager to cope with these social costs. It may be argued that the concept of profit maximizations are ideologically bankrupt since in practice it is rooted in the notion that the end justifies the means.

It ignores the notion, held in some quarters, that excess profits are indicative of the exploitation of workers in particular, and society in general. Another argument offered in a favor of social responsibility is that contributions to charity serve a social function, since some managers, business owners, and even workers derive some psychological satisfaction from their organization’s participation in solving social problems.

The argument that businesses should leave contributions to charity to the wishes of individual shareholders may be criticized because it ignores the legal distinction between the individual citizen and the corporate person, both of whom have inalienable rights and obligations. As a good citizen, therefore, the corporation has civic duties and should help society on moral and compassionate grounds.

Some advocates of business social responsibility have gone beyond these non-economic arguments, to try and show that the concept can be rationalized on economic grounds. It could be contended that being socially responsible has positive implications for a company’s image. Therefore, it has the potential to pay off economically. It is also argued that being socially responsible is a surer and cheaper way than lobbying to curtail government intervention, in the market place through restrictive laws and regulations.

Finally, there have been attempts by advocates to demonstrate that corporate philanthropy, (the most criticized aspect of social responsibility), is, in fact, compatible and consistent with profit maximization, and the maximization of shareholders’ wealth.

For example, consider the following argument by William J. Baumol.

As businessmen see more clearly and are more able to show more effectively to their shareholders that the company’s property depends on the health of the communities in which it operates, it will become clearer that self-interest is needed served by corporate contributions. The company pays a high price for operating in a region, where education is poor, where living conditions are deplorable, where health is poorly protected, where the property is unsafe, and where cultural activity is all but dead. As it grows clearer to stockholders and others immediately concerned that these circumstances are all more expensive than corporate giving, the rationality of business philanthropy must become obvious.

Henry C. Wallich and Mcgowan have argued further that since shareholders tend to have an interest in many companies, ‘corporate giving’ which tends to benefit these companies is consistent with the shareholder’s interest.

This is considered to be particularly so since other companies could make contributions that would benefit all other companies in the long-run. In the opinion of these advocates, therefore, the proposition that corporate involvement in social policy is contrary to the stockholder’s interest is both misleading and irrelevant.

Whatever may be said in favor or against social responsibility, one thing is clear: society expects business organizations to be socially responsible in all the four broad ways discussed, in our examination of the meaning of the concept.

It is, therefore, to be expected that society will measure business performance against this expectation, and form its attitudes and its response patterns toward the organization on this basis. This by itself constitutes an economic justification for corporate participation in social causes, to provide the right atmosphere for the pursuit of economic goals. In other words, social responsibility today represents an inevitable constraint on other corporate objectives.


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